Debt management priority in 2019

• With debt repayments looming priority should be given to fiscal discipline says Treasury Secretary

In 2019, the Finance Ministry will give priority to debt management, while also focusing on maintaining fiscal discipline, Finance Ministry Secretary Dr. R. H. S. Samaratunga said yesterday. 

Speaking at the ceremony to mark the start of work on 1 January at the Finance Ministry, Dr. Samaratunga acknowledged that public revenue had increased over the past year, but since expenditure had also grown correspondingly, 2019 would require careful fiscal management. 

“We must maintain fiscal discipline while giving priority to effective debt management, as 2019 will be a challenging year,” he told the staff of the Finance Ministry.  

“Proper management of public expenditure will need much focus this year. Better management of public expenditure will need the attention of all officials of the Finance Ministry. Even though there are other Ministries, the Finance Ministry has special importance in managing fiscal discipline. As in the past, I hope that this year too, the Ministry employees will continue to discharge their duties well,” he said. 

Sri Lanka’s Central Bank had earlier announced that it was preparing for debt repayments, which will start with a $1 billion international sovereign bond repayment in mid-January, and a further $500 million payment in April. The Central Bank had also outlined plans to establish swap arrangements with the Central Banks of Oman and Qatar, as well as encourage borrowings through local commercial banks to assist in the repayments. 

These plans were challenged by international rating agencies, downgrading Sri Lanka in November.  Moody’s assessment was that the Government’s debt refinancing will remain highly vulnerable to sudden shifts in investor sentiment in a period of further tightening in financing conditions and political and policy uncertainty, with limited buffers to face such risk. 

Moody’s, at the time of the downgrade, noted the Government will remain broadly focused on implementing important fiscal, monetary and economic reforms that would strengthen the credit profile over the medium term. 

However, Moody’s assessment is that the Government’s debt refinancing will remain highly vulnerable to sudden shifts in investor sentiment in a period of further tightening in financing conditions and political and policy uncertainty, with limited buffers to face such risk.

Finance Minister Mangala Samaraweera and State Finance Minister Eran Wickramaratne have also emphasised that the Government remains committed to fiscal consolidation and would work to put the $1.5 billion International Monetary Fund (IMF) Extended Fund Facility (EFF) program on track. They have also stepped away from sweeping tax changes, but have said the Budget for 2019, which is expected to be presented to Parliament this month, will focus on providing assistance to the public. 

Economists have voiced concerns of fiscal slippage as Sri Lanka heads into elections next year, with the Central Bank warning that there is limited room to increase public expenditure.